SuccessFactors alleges covert scheme by competitor

SuccessFactors says Halogen Software set up a fake company, posing as a potential customer to gain competitive information

SuccessFactors is alleging that rival human-resources-software vendor Halogen Software concocted a fraudulent and covert scheme in order to obtain competitive information from it, according to a lawsuit filed in U.S. District Court for the Northern District of California.

Halogen, based in Ottawa, Canada, set up "a bogus 'mid-sized' company -- The Magnus Group -- replete with purportedly more than 500 employees and a sham website specially designed by an Ottawa design firm that has also worked with Halogen," according to SuccessFactors' complaint, which was filed in December.

Using the fake company as cover, one or more Halogen workers "falsely represented they were a legitimate sales prospect wishing to purchase software services from SuccessFactors," it adds.

An "intensive sales effort" by SuccessFactors, including a number of product demonstrations, ensued over several weeks in mid-2010, according to the complaint.

But on Sept. 16, the Magnus Group representatives abruptly said they were no longer interested, it states.

The Magnus-Group.com website listed an address in Valparaiso, Indiana, but SuccessFactors "believes that no company named Magnus Group has ever been at this property," which apparently once served as headquarters for a convenience store chain, according to the complaint.

SuccessFactors was contacted in July 2010 by a woman claiming to be Anna Rodriguez, the human resources director for Magnus Group, it states. The Magnus Group website described it as a consulting firm offering business process management and other services, according to SuccessFactors. The site was not accessible on Friday.

Communications continued between Rodriguez and a SuccessFactors sales staffer, ultimately leading to a roughly three-hour-long Web meeting between the salesperson, Rodriguez and another purported Magnus Group employee named "Judy," the complaint states.

More meetings were held at Rodriguez's request, during which she obtained "non-public information about pricing" as well as details on SuccessFactors' implementation processes and track records, it adds.

In September, Rodriguez was given pricing information about SuccessFactors' Cubetree software, which it had just acquired. The data was accompanied by a warning stating that the information was confidential and proprietary and not to be shared with third parties without permission, according to the complaint.

Days later, Rodriguez e-mailed the sales manager and told him Magnus Group was no longer interested in purchasing the software, "based on her understanding that SuccessFactors does not offer an integrated payroll and benefits system, which in fact SuccessFactors does offer," the complaint states.

Subsequent attempts to reach Rodriguez and the Magnus Group were unsuccessful, according to the complaint.

SuccessFactors then discovered that the Magnus Group address and contact information listed on its site were invalid, it adds. The salesperson contacted the site's design firm, Creative Equilibrium, which told him the work had been done for an Ottawa company, it states.

In addition, SuccessFactors determined that e-mails Rodriguez had sent to the salesperson originated from an Internet Protocol address linked to Halogen, according to the complaint.

Halogen's "continued use of the pricing and product information it has wrongly obtained will cost [SuccessFactors] considerable, untold sales," the complaint adds. SuccessFactors is asking for an injunction that would bar Halogen from using its information as well as various compensatory and punitive damages.

But on Dec. 27, Halogen filed a motion to dismiss the case, arguing that SuccessFactors is filing suit based on its own "willingness to disclose its product and pricing information without taking the necessary steps to protect itself under the law," such as asking Magnus Group to sign a nondisclosure agreement.

"At most, SuccessFactors points to a confidentiality disclaimer present on a single email it unilaterally sent to The Magnus Group relatively late in the parties' dealings with each other," the motion states.

"SuccessFactors is embarrassed about what it has done, and it has brought suit alleging untenable claims that are all superseded by California's Uniform Trade Secret Act in an effort to punish Halogen for SuccessFactors' own failings," it adds. "SuccessFactors fails to identify any 'property' that has been permanently deprived by Halogen, any instance in which its information was used or disclosed by Halogen, any specific 'economic relations' that have been interfered with, or any lost sales or profits as resulting from the conduct complained about."

Even if all of SuccessFactors' claims were accepted as true, all the suit succeeds in doing is alleging that "Halogen, via The Magnus Group, freely obtained nonconfidential information that many other companies and individuals already have in their possession," Halogen's motion argues. "There is no legally cognizable claim for relief for such activity."

The motion to dismiss will be heard on March 29, according to Halogen's filing.

Halogen did not respond to a request for additional comment. SuccessFactors said that it would respond, but as of press time had not.

Chris Kanaracus covers enterprise software and general technology breaking news for The IDG News Service. Chris's e-mail address is Chris_Kanaracus@idg.com

Tags Halogenbusiness issuesInternet-based applications and servicesapplicationslegalHRsoftwareinternetcloud computingSuccessFactors

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Chris Kanaracus

IDG News Service

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